Corporate financial health is just as vital as personal financial wellness. A good credit score enables a company to obtain trade credit and loans from banks and non-banking financial institutions such as MSME business loans with ease. When it comes to quantifying the financial health of a company, an important metric is the CIBIL rank. This naturally raises the questions as to what CIBIL is and what the CIBIL rank quantifies. CIBIL or the TransUnion CIBIL Limited is an Indian credit information firm. It manages credit data for 600 million people and 32 million companies. Moving on to the second question as to what the CIBIL rank quantifies, the CIBIL rank is a bank’s estimate of a client’s trustworthiness based on information from their credit history. The two main parameters used to calculate the CIBIL rank of a company are repayment behavior and credit utilization. The better the rank, the friendlier the bank is with the company. The CIBIL rank ranges from 1 to 10. A CIBIL rank between 4 and 1 is regarded to be good. In short, a company with a good credit score such as the CIBIL rank is one that is considered trustworthy enough to be eligible for a business loan in India.
Company Credit Report (CCR)
The CIBIL rank is not the only parameter that is considered by lending organizations such as banks or NBFCs to deem a company creditworthy or trustworthy enough to offer loans to. This is where you must pan out to see the bigger picture and understand what the Company Credit Report (CCR) is. A Company Credit Report is an intricate document that represents an organization’s financial health and is compiled using data from various credit institutions. Lenders use this report to assess an organization’s creditworthiness before approving a loan. Typically, a Company Credit Report comprises:
- Detailed information about the company’s parent and subsidiary firms, ownership, years of existence, and so on
- CIBIL rank
- A summary of the company’s financial history, covering repayments, collections, and revenue generation, among other things
- Financial information determines the suitable credit levels that lenders are willing to extend to them.
The Company Credit Report of a company is affected by the following factors
- Duration of the credit history. The longer the credit history, the better it is for the Company Credit Report
- The Credit Utilization Ratio, which is a metric for the requirement of credit, A higher credit utilization which indicates that a company has high utilization of the available credit negatively affects the Company Credit Report.
- Repayment History. Payment of an outstanding balance on time is always a positive indicator for the Company Credit Report.
- The outstanding debt value. CIBIL considers the total amount of debt the company owes to various credit organizations while calculating your Company Credit Report. As a result, it’s critical to preserve only the most manageable amounts outstanding.
- The duration for which the company has been operational. When compared to start-ups, older companies are more likely to have higher Company Credit Report as organizations that have been in operation for a longer time and have continued to expand should be more respectable than those that are smaller and newer.
- The Industry that a company functions in. Industries with high business risks tend to reflect negatively on the Company Credit Report of the company.
What Steps Can I Take To Improve The Cibil Rank And Ccr For My Company?
The first step here is to understand the factors that affect the CCR and CIBIL rank of your company, once you do that you can take the following steps to improve these metrics:
- Maintain a systematic and timely repayment history: All businesses require business loans at one point or another to remain operational and business loans in India are provided by multiple lending organizations, finding loans is as easy as looking for business loans online or completing the MSME registration process. While availing of a loan is important, paying it back is just as important for the survival of your business. Paying back your loans on time and maintaining a good repayment history is one of the major steps of getting a good CIBIL score. Use business loan EMI calculators or business loan interest rate calculators to stay one step ahead.
- Clear outstanding debts at the earliest: Credit cards and EMIs help a good number of businesses in the country stay operational. If your company relies on these for support, it essentially means that your company has debts and it is important that you do not leave your debts outstanding for long durations. Pay your credit card bills on time and do not default your EMI payments.
- Keep your transaction reports up to date and accurate: Businesses require a large volume of transactions to stay operational. The large volume of these transactions could lead to errors being made while reporting these transactions. The errors could be on your part or on that of the banks or credit institutions. It is important that these transaction reports are accurate and up to date. This would require your company to work closely with financial institutions and ensure everything is in order.
- Maintain a balanced credit utilization ratio: This involves taking loans only when required, taking only those loans which you can pay back on time, and not exhausting your credit limit. Taking long loans and paying them back systematically and on time is an additional step.
- Keep yourself informed about your financial health: Track your transactions, and credit history and check your CIBIL rank often to keep yourself ahead.
In conclusion, understanding CIBIL ranks, CCRs, how they function, and what controls them is the first step you can take in improving your CIBIL rank. Taking steps to improve your credit history is the next thing you have to do. Pay your loans back on time, maintain a balanced credit utilization ratio and monitor your CIBIL rank to stay ahead.